Wednesday, October 21, 2015

LLY Analysis

Update 10/28/2015: Profit on my LLY bull put spread exceed half of the maximum potential and I exited for  profit.

Shares rose by 6.4% over seven days, or a +334% annual rate. The options position produced a 136.1% yield on debit, for a +7,097% annual rate.

The pharmaceutical house Eli Lilly and Co. (LLY), headquartered in Indianapolis, Indiana, publishes earnings on Thursday before the opening bell.

[LLY in Wikipedia]


I shall use the DEC series of options, which trades for the last time 58 days hence, on Dec. 18.


Implied volatility stands at 33%, which is 2.2 times the VIX, a measure of volatility of the S&P 500 index. LLY’s volatility stands in the 62nd  percentile of its annual range.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

I'm bullish LLY based on analyst expectations of an upside earnings surprise.

Bull put spread, short the $75 puts and long the $72.50 puts,
sold for a credit and expiring Dec. 19.
Probability of expiring out-of-the-money


The premium is $0.85, which is 34% of the width of the position’s wings. The stock at the time of entry was priced at $77.06.

The risk/reward ratio is 1.8:1.

The strike is $2.06 below the price. The biggest immediate move after each of the past four earnings announcements was $0.38, and the average was $0.23.

Decision for My Account

I've placed an order for LLY as described above and shall update with the fill.

-- Tim Bovee, Portland, Oregon, Oct. 21, 2015


Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.


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Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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